Exchange traded funds that seek to replicate strategies used by hedge funds remain a small part of the business although two ETFs in the category have each gathered $200 million in assets.

The largest “hedge fund” ETFs are WisdomTree Managed Futures Strategy Fund (NYSEArca: WDTI) and IndexIQ Hedge Multi-Strategy Tracker (NYSEArca: QAI).

ETFs in the space are also sometimes labeled as “alternative” funds.

It’s important to understand that these ETFs are not “funds of funds.” In other words, they don’t make direct investments in hedge funds.

Instead, their tracking indices attempt to mimic hedge fund strategies by shifting the portfolio into various asset classes, such as stocks, bonds and cash. Some of the funds invest in other ETFs.

“WisdomTree Managed Futures Strategy (WDTI) democratizes a managed futures strategy, which previously have been limited to expensive or hard-to-access funds. It aims to be a low-volatility, uncorrelated diversifier and, therefore, is suitable as a satellite holding,” Morningstar says in an analyst report on the ETF.

Performance has been lackluster the past year. For the 12 months ended May 24, the ETF is down 17.3%, compared with a 2.6% gain for the S&P 500, according to Morningstar.

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